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Thursday, August 20, 2009

Define price ... using pictures

Today, we explore some fun introductory economics through pictures, but first, some background:

In an introduction to economics, the first concept to discuss is scarcity. Scarcity gives rise to opportunity cost (If you can't do everything you want, there must be a next best opportunity; the value of that opportunity is opportunity cost.).

Next up? Price. Fundamentally, price is what you give up to get something. But, one source of confusion about price is that it isn't just measured in dollars (or whatever unit of currency you choose). It is measured in dollars per unit of the good. If you change how much of the good you buy, the price changes too.

That's completely obvious, I know. But, it's entertaining to see stores struggle to post prices in an informative way. To see what I mean, let me introduce you to a picture that conveys my point:

This is a price tag at our local CVS Pharmacy. The item is a pen-shaped container of minty breath spray. As the price tag conveys, this container will set you back $1.99. But, if you want to buy a quart of it (that's 145 breath pens), you pay $289.45. Upon seeing this price tag, I had several questions:

Does anyone actually pay attention to the per quart price?If so, are people actually buying these breath pens 145 at a time?Is that why there's only one remaining in the store?

Here's a more mundane example: the pricetag on a package of Kit-Kats:

Each package, it seems, is 1/4 of a pound because the red price is the price per pound. At this level, the red price tag conveys useful information. After all, if you go to a candy store, they often sell chocolate by the pound.

So, we have one reasonable example and one unreasonable example. How about a shocking example?

I don't know what is more shocking: the $200 price tag, or the fact that someone thought that 200 condoms was the appropriate reference quantity for consumers.

One thing is for sure: the CVS employees would look at me strangely if I arrived at the counter with 145 minty breath pens, 200 condoms, and a pound of Kit Kats. Then again, they printed the labels.